CDW LLC et al v. NETECH CORPORATION
ORDER granting in part and denying in part 174 Motion to Compel. Plaintiffs shall produce the non-privileged documents ordered to be produced herein within 21 days of the date of this order. Signed by Magistrate Judge Debra McVicker Lynch on 5/5/2011. (LH)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
CDW LLC, et al.,
CASE NO. 1:10-cv-00530-SEB-DML
Order on NETech’s Motion to Compel
This matter came before the court on a motion (Dkt. 174) by defendant NETech
Corporation to compel the plaintiffs (hereafter, collectively, “CDW”) to produce certain
documents. Three categories of documents are at issue:
(1) Documents concerning “mass reassignments” of CDW customers that took place in
2008, and all communications concerning complaints about account reassignments
for all customers for which CDW is claiming losses;
(2) Documents relating to CDW’s costs of services to the customers for which CDW is
seeking damages; and
(3) Documents concerning and relating to a contract between CDW-Government and the
Plaintiff CDW and defendant NETech are competitors in the computer hardware industry
and sell technology products and business solution services to customers in a wide variety of
This background is taken largely from the court’s order dated July 7, 2010, granting
CDW’s motion for preliminary injunction. (Dkt. 96). The court does not intend that this
description is a final adjudication or binding on the parties, but provides this general background
to give context to the discovery dispute.
industries. This litigation ensued after NETech began soliciting CDW employees, including
managers, salespeople, and engineers, to work for NETech. NETech contacted the then-branch
manager of CDW’s Indianapolis office, who expressed interest in working for NETech and who,
while still working for CDW, began recruiting other CDW employees to work for NETech.
NETech’s goal was to develop a “crushing competitive advantage” in the Indiana marketplace.
Some of the CDW employees who left for NETech were John Bannister (the CDW Indianapolis
branch manager), Rick Dinkins, Amy Peterson, and Nicole Sawa. The court heard evidence at
the preliminary injunction hearing that these employees took CDW documents, via computer
downloads or otherwise, while still employed by CDW and then used them in their new jobs
with NETech. These employees had non-competition and confidentiality agreements with
CDW. CDW accuses NETech of encouraging and facilitating the employees’ breaches of their
non-competition and confidentiality agreements. CDW’s lawsuit against NETech asserts claims
for tortious interference with contractual and business relationships, misappropriation of trade
secrets, unfair competition, and conspiracy to breach fiduciary duties. In addition to final
injunctive relief, CDW seeks damages against NETech measured (at least in part) with reference
to profits CDW would have earned on business for customers who were wrongfully solicited by
General Discovery Principle
Rule 26 of the Federal Rules of Civil Procedure allows parties to obtain discovery of any
“nonprivileged matter that is relevant to any party’s claim or defense.” Fed. R. Civ. P. 26(b)(1).
Though the scope of discovery is broad, the court must limit discovery otherwise allowed where
(1) it is unreasonably cumulative or duplicative or can be obtained from a source that is less
burdensome or expensive; (2) there already has been ample opportunity to obtain the requested
discovery; or (3) the burden or expense to comply with the requested discovery outweighs its
likely benefit “considering the needs of the case, the amount in controversy, the parties’
resources, the importance of the issues at stake in the action, and the importance of the discovery
in resolving the issues.” Fed. R. Civ. P. 26(b)(2)(C)(i)-(iii).
Mass Reassignments Documents
The parties have reached an agreement regarding CDW’s obligations in responding to
Second Document Requests 3-8 regarding the reassignments, although they are suspicious
whether each understands the agreement the same way. To fulfill its obligations in responding to
Requests 3-8, CDW has agreed to search for and produce (1) additional documents reflecting the
rationale for its 2008 mass reassignment project and (2) additional documents concerning
reassignments of particular accounts and particular account representatives resulting from the
2008 reassignment project and for which CDW is claiming any losses or damages in this case.
NETech is concerned that CDW’s promise to search for additional documents is not detailed
enough to assure NETech that the search will be sufficiently thorough. To implement the
parties’ agreement, the court orders as follows.
With respect to category (1) above, the court orders CDW to conduct searches of the
paper and electronic files, and produce responsive documents located through the search,
maintained by or otherwise under the control of persons likely to possess, or to have possessed,
documents in category (1). At a minimum, the search and production shall include documents
(including electronic files and emails) maintained by CDW decision-makers regarding the 2008
reassignment project and by Christina Rother, Terry Swanson, John Edwardson, and John
Bannister. CDW shall provide NETech with a report that states the custodians and files that
were searched. CDW shall conduct searches of additional files for any other custodian who
NETech reasonably believes is likely to possess responsive documents.
With respect to category (2) above, the court orders CDW to conduct searches of paper
and electronic files, and produce responsive documents located through the search, reasonably
likely to reveal or relate to complaints about account reassignments for all of the customers for
which CDW is claiming losses in this case. CDW shall provide NETech with a report that states
the custodians and files that were searched. CDW shall conduct searches of additional files for
any other custodian who NETech reasonably believes is likely to possess responsive documents.
CDW shall conduct the searches, produce the responsive documents, and provide the
reports of their searches within 21 days of the entry of this order.
Cost of Services Documents
NETech’s Third Document Request 3 seeks cost information for products and services
identified in CDW’s quotes to certain customers:
Request No. 3. Any and all documents establishing or evidencing the cost
to Plaintiffs or to CDW-Government LLC for the products and/or services
identified in quotes generated by any of the Plaintiffs or by CDW-Government
LLC and provided to any of the customers listed in Plaintiffs’ Preliminary
Injunction Exs. 70 or 71 since March 1, 2010.
The customers referenced in Third Document Request 3 are ones for which CDW
intends to seek damages, and the request is designed to uncover information by which NETech
may test CDW’s alleged lost profits. NETech also argues that the information is relevant to its
counterclaims against CDW. CDW does not challenge the relevance of the requested discovery,
and has agreed to provide the cost information for its goods (or products). CDW has also agreed
to provide some information regarding its costs of services, but contends that it is “impossible”
for it to calculate cost of services except on a project-by-project basis and only after the project
has been completed. CDW has offered to produce “service margin information on a project-byproject basis for 2008 through 2010,” and believes this offer should moot NETech’s motion to
compel. (CDW response to motion to compel, Dkt. 180, at p. 12).
NETech contends that CDW’s proposal allows CDW to cherry-pick information and
denies NETech the ability to test CDW’s damages claims. NETech maintains that CDW’s offer
to provide NETech with its service margin calculations for projects is helpful, but that it also
needs the underlying documentation of CDW’s costs that would permit NETech to make the
calculations for itself. (See NETech reply brief, Dkt. 181, at pp. 9 -10).
The court agrees with NETech that it is entitled to more than CDW’s “margin
information” for services quoted to the subject customers. First, it is not clear what CDW means
by “service margin information on a project-by-project basis for 2008-2010.” For example, the
court cannot ascertain whether CDW is referring to actual margins on different projects actually
completed for the subject customers, or whether it refers to a summary of projected or assumed
margins on projects quoted but not awarded to CDW. Second, in either event, NETech is
entitled to discover the documents that “establish[ ] or evidence[ ]” the calculations of cost (or
projected cost) of the quotes referenced in its request. That conclusion flows not only from Fed.
R. Civ. P. 26, but also, in all likelihood, from Fed. R. Evid. 1006.2 Third, CDW’s contention that
it is impossible to calculate “costs” on a service project until after the project is completed is
based on a mischaracterization of NETech’s request. CDW apparently reads the request to refer
to costs CDW actually incurred on a project, which of course would be impossible in the context
As the court apprehends CDW’s damages theory, CDW will try to prove that it lost
profits when, because of NETech’s alleged wrongful conduct, it was not awarded certain projects
it had quoted to customers. To the extent CDW will establish what its net profits on those
projects would have been through the use of summaries showing its “service margins” on the
projects, Rule 1006 would require it to have made the documents underlying its summaries
available to NETech.
of quotes on jobs CDW was never awarded. But NETech’s request encompasses the costs
CDW assumed for purposes of preparing the quotes. Presumably, CDW did not take stabs in the
dark about its costs in providing the services it was quoting. If it has documents that reflect its
assumptions, projections, or calculation of costs underlying those quotes, it must produce them.
CDW has not given the court any basis for concluding that it does not possess responsive
documents or any reason recognized under Fed. R. Civ. P. 26(b)(2)(C)(i)-(iii) for limiting its
obligation to produce them.
Because NETech’s request for cost of services documents for the services quoted to the
referenced customers seeks relevant evidence and because CDW has not demonstrated that it is
too burdensome to provide the documents, the court grants NETech’s motion to compel as to
Third Document Request 3. CDW is ordered to produce, within 21 days of the entry of this
order, its documents “establishing or evidencing” its costs for services as requested.3
The CDW-Government documents requested by NETech are relevant, if at all, to a
potential unclean hands defense by NETech to CDW’s request for permanent injunctive relief.
NETech’s Second Document Requests 9-12 are:
Request No. 9. Any and all documents created after January 1, 2009, and
generated by, received by, or copied to Christina Rother concerning, relating to or
discussing audits by the General Services Administration (“GSA”) or the concern
that the GSA might conduct an audit of one or more of the Plaintiffs.
Request No. 10. The Schedule 70 GSA Federal Supply Service Contract Number
GS-35F-0195J (“the 0195J Contract”) with CDW-Government, Inc. (“CDW-G”),
230 N. Milwaukee Ave., Vernon Hills, IL 60061-1577. This request includes all
Sections, Attachments, Modifications, Statements of Work and other parts to the
The court does not know the volume of documents responsive to Third Document
Request 3 and has no information allowing it to predict the reasonable time necessary for CDW
to produce the responsive documents. If CDW needs more time to comply fully with Third
Document Request 3, the court will be amenable to allowing more time for good cause shown.
0195J Contract. This request does not include records comprising orders placed
against the 0195J Contract.
Request No. 11. The proposals/offers submitted by CDW-G leading to the 0195J
Contract, including specifically the Commercial Sales Practices (CSP-1.)
Request No. 12. The proposals/offers submitted by CDW-G relating to the
extension, renewal, or replacement of the 0195J Contract, where that contract is to
end on July 15, 2010, including all CSP-1Formats and related information
submitted to GSA.
Based primarily on the facts of a Seventh Circuit decision, NETech seeks to pursue a
theory that the employees who left CDW (or whom NETech lured away from CDW) did so
because they believed CDW was engaged in unlawful business practices through allegedly
charging the federal government more money than CDW charged non-government customers for
comparable work—in essence, that CDW gouged the government unlawfully or unfairly.
In Mantek Div. of NCH Corp. v. Share Corp., 780 F.2d 702 (7th Cir. 1986), employees
were lured from one company to its competitor, allegedly in violation of their non-competition
agreements. The former employer sued the new one and the former employees and was granted
a preliminary injunction forbidding the employees from soliciting customers within the
territories the employees had served for their former employer. The defendants challenged the
district court’s grant of the preliminary injunction, in part on the ground that the court refused to
consider evidence giving rise to a “colorable” defense to the enforcement of the employees’ noncompetition agreements. The defendants sought to introduce at the preliminary injunction
hearing evidence that the former employer had been engaged in unlawful commercial bribery
that tainted the employees’ non-competition agreements. The Seventh Circuit ruled that the
district court erred in refusing to consider the evidence because the commercial bribery defense
was colorable and, if established, could have influenced “the court’s decision as to [the
plaintiff’s] ‘clean hands’ and thus [the plaintiff’s] reasonable likelihood of success on the
merits.” Id. at 706.
The defendants tied the former employer’s alleged commercial bribery to the employees’
non-competition agreements by arguing that the bribery scheme was as much a part of the
employees’ agreements as any other term of their employment because they were required to
engage in the bribery practices (and use their sales commissions to pay the bribes) to keep their
jobs. Id. at 708 (“We find this bribery . . . to be so much a part of the sales contract that [the
employer] seeks to enforce that all of the defendants have a sufficient nexus to raise the
commercial-bribery defense”). The bribery scheme also was allegedly “essential” to all of the
former employer’s business practices because its products were more expensive than all
competitors’ products and the only reason customers would buy from the former employer was if
its salespeople paid adequate bribes to the customers’ agents for purchasing from the employer.
Id. at 706. These close ties between the “colorable” defense theory and the validity of the noncompetition agreements themselves were critical to the court’s decision that the district court
should have allowed the defendants to present evidence to support the theory. See id. at
707-08. It would not have been enough, however, to argue, for example, that the employer was
a tax cheat because the nexus would be missing between the employer’s behavior and the
validity of the restrictive covenants. Id. at 707 n.7.
NETech’s attempt to fit within the Mantek analysis and to establish the possibility of a
nexus between CDW-Government’s alleged fraudulent behavior toward the government (for
which NETech offers only speculation) and the non-competition agreements at issue in this case
falls flat. NETech maintains that the required nexus lies in the fact the old CDW employees left
CDW because they were no longer allowed to serve (and presumably potentially to gain from)
CDW’s government accounts. (See NETech’s reply brief, Dkt. 181, at p. 4: “To be clear,
NETech contends that employees who are at issue in this case left Plaintiffs’ employ because
their accounts were taken away in furtherance of Plaintiffs’ improper purpose of deceiving the
government by siloing accounts [into CDW-Government in order to charge more money to the
government]”). NETech has not posited any theory to tie the CDW employees’ employment
contracts themselves to CDW’s alleged abuse of its separate contractual relationship with the
government. NETech’s nexus theory is akin to the “I quit because my employer is a tax cheat”
that was rejected by the Mantek court. The nexus required by Mantek is between the
employment contract and the employer’s unlawful behavior—akin to a contractual illegality
defense. See 780 F.2d at 708 (defendants sought to prove that “the Mantek covenants not to
compete were part of a pervasive scheme of commercial bribery”). The employees in Mantek
claimed that the contracts their former employer was trying to enforce against them were
illegally dependent upon the employees’ participation in commercial bribery. The Mantek court
[The defendants’ offer of proof] indicates that Mantek’s scheme of alleged
commercial bribery so permeates Mantek’s sales practices that all of Mantek’s
salesmen were required to participate in the scheme. A restrictive covenant
substantially limiting a salesman’s opportunities to continue practicing his trade
after leaving Mantek certainly gave Mantek leverage in its alleged attempts to
coerce unwilling salesmen to adopt its practice of bribing purchasing agents. We
find this bribery . . . to be so much a part of the sales contract that Mantek seeks
to enforce that all of the defendants have a sufficient nexus to raise the
780 F.2d at 708 (emphasis added).
Moreover, NETech’s nexus theory differs from that in Mantek in another fundamental
way. In Mantek, the defendants maintained that they were required to participate in allegedly
unlawful conduct to keep their jobs. In this case, the former employees of CDW state that CDW
did not allow them to service the government contracts that allegedly were part of CDW’s
wrongful behavior. Thus, the alleged wrongful conduct here could not be viewed as a term of
employment as it was in Mantek.
Because NETech’s theory is not one that ties the validity of the non-compete agreements
to CDW’s alleged abuse of its contractual relationship with the government and there is no other
basis on which NETech claims that the CDW-Government documents are relevant to this case,
the court finds that the burden on CDW to respond to NETech’s Second Document Requests 912 outweighs any possible benefit to permitting that discovery.
For the foregoing reasons, NETech’s motion to compel (Dkt. 174) is GRANTED in part
and DENIED in part. Plaintiffs shall produce the non-privileged documents ordered to be
produced herein within 21 days of the date of this order.
Debra McVicker Lynch
United States Magistrate Judge
Southern District of Indiana
Craig T Boggs
PERKINS COIE, LLP
Laurence John Oleksa
PERKINS COIE, LLP
Michael R. Brunelle
BARNES & THORNBURG LLP
Jennifer Lynn Schuster
BARNES & THORNBURG LLP
David A. Given
BAKER & DANIELS
Aaron M. Staser
BARNES & THORNBURG LLP
Donald E. Knebel
BARNES & THORNBURG LLP
Eric E Walker
PERKINS COIE, LLP
Dwight D. Lueck
BARNES & THORNBURG
Christopher B Wilson
PERKINS COIE LLP
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